Sector reacts to post-pandemic shift in digital spending and gloomy economic outlook for 2023
Microsoft is cutting 10,000 jobs as it cited a post-pandemic shift in digital spending habits and weakness in the global economy.
The tech group joined a list of US peers making extensive job cuts, including Facebook owner Meta, Amazon, and business software-maker Salesforce, who have scaled back on workforce expansions stoked by a pandemic-related boom in demand for their services and products that have lost momentum.
Microsoft’s chief executive, Satya Nadella, said in a blogpost that customers had increased their digital spend when coronavirus hit in 2020-21 but were now scaling back.
“We’re now seeing them optimise their digital spend to do more with less,” he said.
Nadella added that organisations in every industry and region worldwide were showing caution “as some parts of the world are in a recession and other parts are anticipating one”.
Nadella also pointed to artificial intelligence creating the “next major wave of computing” as an example of the ”significant change” the company is facing. Microsoft is an investor in OpenAI, the company behind the ChatGPT chatbot.
“We will align our cost structure with our revenue and where we see customer demand. Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs.”
Microsoft employs about 220,000 people worldwide, with the cuts representing less than 5% of its total workforce.
The layoffs, to be carried out by the end of March, will result in a charge of $1.2bn (£1bn) in the second quarter of its fiscal year, Microsoft said.
It follows some reductions last year. Microsoft said last July that a small number of roles had been eliminated, and in October the news site Axios reported that the company had laid off fewer than 1,000 employees across several divisions.
Microsoft is grappling with a slump in the personal computer market after a pandemic boom fizzled out, leaving less demand for its Windows and accompanying software. Slowing demand has also hit Microsoft’s cloud computing unit, which is now the largest past of its business.
The company also owns the Xbox gaming platform and is attempting to buy the video game maker Activision Blizzard, whose titles include Call of Duty and World of Warcraft, in a $68.7bn deal. However, the US Federal Trade Commission has moved to block the transaction on competition grounds.
One analyst said Microsoft and other US tech companies were fighting a “category five near-term economic storm”.
Dan Ives, analyst at US financial services firm Wedbush Securities, said: “We are seeing the clock strike midnight for the tech sector after a decade of hyper growth and now major layoffs are being seen at [Microsoft], Salesforce, Meta, Amazon, among many others across [Silicon] Valley. This is a rip the Band-Aid off moment to preserve margins and cut costs.”
Overzealous hiring during the pandemic has become a feature of many tech firms’ job-cutting announcements in recent months. Amazon’s workforce had doubled to 1.5 million since March 2020 and this month the company said it would cut 18,000 of those roles.
The online retailer’s chief executive, Andrew Jassy, referred to “the uncertain economy” when announcing the cuts, but added that Amazon had “hired rapidly over the last several years”.
Amazon began implementing the mass job cuts on Wednesday, according to Bloomberg, with workers in the US, Canada and Costa Rica being contacted via email. Bloomberg added that affected workers in China would be contacted after the Lunar New Year, while in other regions the company will need to hold consultations with employee representatives before starting lay-offs.
Mark Zuckerberg, the chief executive of Facebook and Instagram’s parent company, Meta, announced 11,000 redundancies in November after admitting that an increase in online activity during the pandemic “did not play out the way I expected”.
Salesforce’s chief executive, Marc Benioff, said this month as he announced about 8,000 job cuts that “we hired too many people leading into this economic downturn we’re now facing”.
Joshua White, assistant professor of finance at Vanderbilt University, said company filings showed the firm had increased its workforce by about 50% from pre-pandemic levels.
“Such rapid expansion was based on the competition for attracting tech talent that drives the value at companies like Microsoft, [Google owner] Alphabet and Meta,” he said.
“All these tech companies rapidly expanded their workforce during the past two years in anticipation that the pandemic-period growth, which was partially fuelled by government stimulus, would continue.”
Source: The Guardian
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